Investors had their first chance to respond to Smartgroup Corporation Ltd's (ASX: SIQ) results – released after market close yesterday – this morning, and it seems safe to say they liked what they saw.
Shares soared 20% on the back of a 29% increase in revenue and a 161% increase in profit after tax to trade at $2.85 at the time of writing. Here are some of the highlights:
- Revenue up 29% to $44.8m
- Net Profit After Tax (NPAT) rose 169% to $13.2m
- Net Profit After Tax and Amortisation (NPATA) up 46% to $12.45m
- NPATA margin rose to 28% (25% in first half 2014)
- Dividend of 7.9 cents per share (2.8%) for the first half
- Cash at bank of $9.1m, zero debt
- Several new contract wins including continuation of exclusive contract with Dept. of Defence
- Ongoing focus on innovation, including online self-service
So What?
Similar to McMillan Shakespeare Limited (ASX: MMS), which reported on Tuesday, Smartgroup shows the popularity and attractive business economics of novated lease arrangements.
A number of new salary packaging contracts shows that Smartgroup's offering is attractive to private as well as public organisations, while the renewal of its contract with Defence – one of its largest customers since 1999 – is another big plus. The total number of packages sold grew by roughly 2.5% (3,100 packages) to 122,054 packages.
Improvements in efficiency and a focus on innovation are also paying dividends for shareholders, with Smartgroup reportedly decreasing processing times on new lease arrangements by 75% as a result of shifting online. As a result of this and other initiatives, employee and corporate expenses grew by 12.5%, yet generated a 29% increase in revenue.
Now What?
Investors can likely expect greater efficiency in the future as Smartgroup sharpens its online offering, which could see margin expansion again in 2016. While management declined to provide guidance they did indicate that the second half of 2015 is 'tracking well', with another 7,000 packages expected to be transitioned by NSW Health in August 2015.
Smartgroup has an attractive business model with great economics, and barring regulatory change, or vastly increased competition, the stock looks on track to be a winner for the rest of 2015 and beyond.
